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How Circle will use the blockchain to win the payment-app war

Daniel Roberts
Senior Writer

Boston-based payment platform Circle, which was founded in 2013 and has raised $76 million in venture money, was one of the earliest and best-funded bitcoin companies. Now it has subtly moved beyond the digital currency (but not away from it), and at a time when the popular narrative in fintech is “blockchain, not bitcoin,” Circle is a perfect example of a company straddling both worlds.

Circle’s value proposition is pretty simple: send money anywhere, in any currency, without the friction (transfer delays and fees) of traditional clearance options like Western Union. That is also the biggest selling point of bitcoin, and when Circle first launched, you could only deposit, hold, and send bitcoin.

A lot has changed in two years. Circle still runs on the bitcoin blockchain as its rail, but now Circle users can deposit money to Circle from a Visa or MasterCard credit or debit card, and never have to deal with bitcoin at all. (Circle’s website doesn’t even mention the digital currency.) This month, Circle scored a new partnership with Barclays (BCS), which allows Circle customers to hold and send British pounds. “No one ever sees bitcoin, it’s just underneath,” says co-founder Jeremy Allaire. “If you want to, you can. But we think the number of people who want a non-state-sponsored digital currency as their primary currency is really small.” Circle uses the bitcoin blockchain because it is permissionless, open and global—and that will be its key weapon in the battle over payment apps, which has heated up quickly. (For more on exactly how the blockchain works, watch this video.)

Players like Venmo (owned by PayPal) and TransferWise have gained fast traction among users, while the typical U.S. consumer still doesn’t know Circle. But Venmo is only functional in the U.S. (you can’t use it to send money to another country), and TransferWise is the inverse (you can only send money from the U.S. to another country). Circle is not "closed" like those platforms, says co-founder Sean Neville, and it’s still so early in this space that Circle isn’t too worried about making up ground with user awareness. “It’s a lot like the days of the early online systems, like America Online,” he says, “where we could send messages or content to each other as long as we were both subscribers of that system. We see these new behaviors developing in a more open manner worldwide.”

Allaire has an additional way of brushing aside these competitors, which tout features like “cross-border payments” in their marketing. “Our view is that there is no difference between a domestic payment or an international payment or a cross-border payment, those distinctions just disappear,” he says. “When was the last time you sent a cross-border email? Or had an international web-browsing session? The user doesn’t care. We’re trying to make money work that way.”

That's pretty straightforward and exciting—the idea of sending money being as simple as chatting with someone over Skype (Allaire's preferred analogy). To be sure, there is one inherent contradiction in using the blockchain for bank-based payments: Many consumers and banks have serious fears about the bitcoin blockchain's permissionless structure.

Some of the very same banks that Circle has partnered with or will need to partner with have moved toward the idea of closed, permissioned blockchain technology (without bitcoin), away from the open blockchain Circle uses. Neville's response to that? "They’re not necessarily mutually exclusive. We got excited about the idea of bitcoin and blockchain simply because it enabled money to work the way the rest of the Internet does. We can share photos, share opinions, but we can’t share money very easily. So bitcoin allows us to do that, without having to think too hard about bitcoin or blockchain, just like the way we don’t think about HTTP when we look at the Web."

That's certainly true—we don't ever think about HTTP. If Circle and other blockchain-based platforms prevail, we won't ever think about how to send money around, either. It will just work.

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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.

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